City watchdogs have hit Royal Bank of Scotland with a £5.6million fine for botching how it reported a third of transactions on financial markets over five years.

The bank failed to report 804,000 transactions to regulators at all, and made errors in a further 44.8million cases between November 2007 and February this year.

Watchdogs say the problems were compounded by RBS's takeover of ABN Amro - the ill-starred deal made as the credit crunch took hold in autumn 2007, which later forced the bank to take a £20billion bailout from taxpayers.

Discount: RBS agreed to settle at an early stage so received a 30 per cent reduction in its fine, which otherwise would have been more than £8million

RBS should have been able to overcome the challenge of putting adequate systems and controls in place after the takeover given its considerable resources, said the Financial Conduct Authority.

Accurate and complete reporting of transactions is essential as this information is used to identify and investigate abuses like insider trading and market manipulation, it added.

'We have set out clear guidance on transaction reporting, backed up by extensive market monitoring, and we expect firms to get it right. As well as a financial penalty, firms can expect to incur the cost of resubmitting historically incorrect reports.'

The watchdog added that failures were particularly concerning because it provides extensive guidance to companies on how to submit and check transaction reports.

It has taken action against seven firms, including Barclays and Credit Suisse, for similar reporting errors.

RBS agreed to settle at an early stage of the FCA's investigation so received a 30 per cent reduction in its fine, which otherwise would have been more than £8million.

RBS narrows search for boss to replace Stephen Hester

Royal Bank of Scotland is narrowing its search for a chief executive with Ross McEwan, the bank’s head of retail, emerging as a strong internal candidate.

The bank has not yet made a choice on a successor for Stephen Hester and a number of candidates, including external ones, are still in the running.

McEwan, a New Zealander who previously ran the retail operations at Commonwealth Bank of Australia, joined RBS in 2012.

The bank may make an announcement as soon as its half-year results next week, though it still has to finalise its decision on the person, settle their pay and gain approval from UKFI, the government body that manages taxpayer stakes in the banks.